By Kirk Victor Originally published on FTC:Watch on September 15, 2017
Government agencies often are rapped for being unresponsive when their work is criticized, but the Federal Trade Commission has shown that it takes such opinions seriously.
The agency sent warning letters to 21 "influencers"— online celebrities who tout products on Instagram and other platforms — advising them that they must disclose business ties, payments or other connections to the product or service being promoted.
Practitioners see these letters as a signal that the FTC is ready to train its enforcement guns on individual influencers. If so, Kristen Strader, campaign coordinator for Public Citizen's Commercial Alert, will be pleased. She informed the agency in June that influencers were ignoring FTC policy and misleading consumers by posting endorsements without disclosing they were being paid or had other ties to products they were pitching.
Public Citizen's investigation found that 45 of 46 influencers on Instagram who had been reminded by the FTC in letters in April to clearly disclose connections to brands that they endorse had ignored the agency.
"Without consequences, influencers and advertisers have no incentive to follow FTC policy and be honest with consumers," she said in June. "Our investigation indicates that the FTC's reminder letters have been ineffective and enforcement action is desperately needed to protect consumers."
Fast forward to a recent interview. Strader said: "I'm definitely glad to see that the FTC is taking deceptive marketing on social media seriously. I hope that they just keep ramping this up and eventually take enforcement action against serial offenders of FTC policy."
"I'm especially pleased they asked in the warning letters that influencers describe actions that they will take to address the problem because that makes it so that the influencers have to respond," she added. "We want [the FTC] to do more. It is still a letter. It doesn't hold any type of financial penalty or anything like that."
"They are listening to us and they rightly recognize that this is a serious issue," said Josh Golin, executive director of Campaign for a Commercial-Free Childhood, who joined Strader in signing the letter in June, along with Jeffrey Chester of the Center for Digital Democracy.
Still, Golin said the FTC must do more to change the culture. "What we need is serious enforcement action."
When asked why the FTC followed up with warnings to only 21 problematic posters on Instagram, an FTC spokesman e-mailed that the agency reviewed each of the posts by 45 influencers that Public Citizen identified. "Many of them were pretty obviously advertisements so no disclosure was necessary," the spokesman said, adding that the agency doesn't believe it needs to write an influencer about every one of his or her posts that "might be problematic."
After the agency sent the first round of 90 letters to influencers in April, "we learned that numerous posts were organic, not sponsored," the spokesman said. "That means that one can't assume that posts lacking disclosures are non-compliant."
Still, the agency's action is a clear warning shot, according to veteran practitioners. "Once you are under the FTC's radar, they are going to continue to look closely at you," Amy Mudge of Venable said in an interview. "If one of these influencers continues to promote products and is getting something of value from a marketer and not disclosing that clearly, my strong suspicion is [that influencer] is going to be on the receiving end of a formal request for information and a formal enforcement action."
"If I had received a second letter from the FTC, I would be calling my attorney right now," Allison Fitzpatrick of Davis & Gilbert said in an e-mail to FTC:WATCH.
Fitzpatrick noted that historically the FTC has imposed liability on marketers for their influencer's failure to disclose their sponsored endorsements in posts, but now the agency is putting influencers on notice "that they may be subject to their own FTC action if they do not disclose their material connections with their sponsoring brands."
Mudge took issue with Public Citizen, which she said is "presuming guilt instead of presuming innocence. It has gone into this assuming every time they see an endorser promoting a product that a payment changes hands."
"I have represented several celebrities who received the prior [April] letter who had posted pictures of themselves with a product who had no connection to the brand," she continued. "We went back to the FTC and told them that. The FTC said, 'Well, that is why you got an educational letter and not a warning letter.'"
As for enforcement, on the same day that the warning letters went out — Sept. 7 — the FTC also made headlines by bringing its first-ever complaint against individual influencers. Trevor "TmarTn" Martin and Thomas "Syndicate" Cassell, two influential YouTube celebrities in the gambling world, settled charges that they failed to disclose that they were owners of CSGO Lotto when they promoted its online gambling services.
Though it is the first such action against individuals, several attorneys noted that because these two also were owners, it's not quite the same as if they were only influencers. "I don't know if this case would have been brought if there hadn't been that ownership nexus," Mudge noted. "It would have been a much bigger deal to my mind if the case had been brought without the ownership connection."
The FTC also charged that Martin and Cassell paid others thousands of dollars to praise the gambling site, but as part of the arrangement, these influencers couldn't say anything critical of the site. These promoters then made many postings on YouTube, Twitch, Twitter and Facebook — in many instances touting thousands of dollars in winnings.
"Consumers need to know when social media influencers are being paid or have any other material connection to the brands endorsed in their posts," FTC acting Chairman Maureen Ohlhausen said. "This action, the FTC's first against individual influencers, should send a message that such connections must be clearly disclosed so consumers can make informed purchasing decisions."
The settlement requires Martin and Cassell, in the future, to clearly and conspicuously disclose such connections with an endorser or between an endorser and any promoted product.
Coleman Watson, who represents Martin and the company, e-mailed FTC:WATCH that his clients "fully cooperated" in the commission's investigation and noted that after reviewing the evidence, the agency sought a consent agreement. "Although the Commission made allegations of Section 5 violations against my clients, my clients did not admit nor did the commission request, an admission of any such Section 5 violations in the consent agreement."
Alicia J. Batts of Squire Patton Boggs, who represented Cassell, said in an interview: "My client is very interested in moving forward. He cooperated with the investigation and wants to be in compliance and had attempted to do so before."
To give influencers further guidance, the FTC also updated its answers to frequently asked questions, with more than 20 additional items that address specific issues to further clarify how to disclose connections in their posts.
"Their guidance is saying when you are paid or when you receive an item that could materially affect the tone or the quality of your comments, you should err on the side of disclosure," Phyllis Marcus of Hunton & Williams, said in an interview.
The guidance includes a range of advice on adequate disclosure on tags in pictures or promos on Instagram and Snapchat. Ambiguous disclosures like "thanks" or "#spon" aren't enough. Such short-hands don't effectively convey the connection to consumers.
In looking at the FTC's multiple actions — the 21 warning letters, the settlement with Cassell and Martin and the updated guidance — practitioners see an agency primed to bring lawsuits.
"Every party in the influencer ecosystem from the brands to their agencies to their influencer networks to their affiliate marketers to the influencers themselves are now fair game," Fitzpatrick said.